The proposed Central bank digital currency (CBDC) will help bring down the transaction fees currently charged on digital payments in what could make it the biggest competitor to Kenya’s mobile money sector.
The banking regulator says the virtual currency that will be exchangeable on a one-to-one basis with physical cash would work in a similar way to the existing mobile money product in the market, with users able to transfer it between wallets or accounts.
The Central Bank of Kenya (CBK) said in a discussion paper on the digital currency that with existing digital money options in the country such as Safaricom’s M-Pesa having achieved wide usage and inclusivity, the CBDC will mainly target cost reduction and easing transactions across different platforms.
“The trend in Kenya’s domestic payments indicate the existence of a digital currency (e-money) that is robust, inclusive and highly active. Therefore, the consideration to introducing a CBDC in the payments system in Kenya could target cost reduction, interoperability and enhancing cross-border payments,” said CBK.
“Assuming the Central Bank charges no fees for CBDC, it would facilitate small-value online transactions given relatively low (or no) associated fees compared to the current payment charges.”
On average, it costs between Sh10 and Sh300 for withdrawals of between Sh50 and Sh150,000 on Safaricom’s M-Pesa, which is Kenya’s dominant mobile money platform with more than 90 percent share of the mobile money market.
These charges are the equivalent of between 0.2 and 26.7 percent of the transacted cash, depending on the amount.
The cost of sending money to fellow registered users on the platform ranges from Sh6 to Sh105, charged on amounts between Sh100 and Sh150,000.
A sender can only transfer up to Sh35,000 to non-registered recipients on M-Pesa, with charges ranging from Sh45 to Sh309.
On the Airtel Money platform, withdrawal charges range from Sh9 to Sh270 for amounts between Sh50 and Sh150,000.
Sending money to fellow Airtel Money subscribers is free of charge, while transfer charges to other networks range between Sh6 and Sh105, for amounts of between Sh101 and Sh150,000.
Telkom’s T-Kash charges between Sh10 and Sh295 for withdrawals of between Sh50 and Sh150,000, while sending money to fellow registered users costs between Sh5 and Sh100.
Sending cash to non-registered users on the Telkom platform, capped at Sh35,000, costs between Sh36 and Sh285.
Interoperability between platforms, the CBK noted, is however limited to person to person (P2P) transfers, leaving out merchant and agent transfers.
The new digital shilling would therefore allow the market to bridge this gap, thus improving the capacity of usage of digital money in payments.
“Though the industry moved to enable interoperability of mobile wallets in 2018, this is limited to only P2P payments and is yet to be expanded to both merchant and agent interoperability and even to work seamlessly for P2P. CBDC may offer promise for this interoperability,” said the CBK.
The regulator notes, however, that the potential of mobile payments in the country remains huge, and would therefore limit the opportunities that a CBDC would offer for retail payments.
Safaricom has for instance in the past decade expanded significantly the range of services one can carry out using its M-Pesa platform beyond sending money, including payments for goods and services, borrowing, purchase of airtime and data, and transfers between bank accounts and mobile wallets.
The platform’s revenue has gone up in turn, hitting Sh82.7 billion in the year ended March 2021, representing 31.3 percent of the company’s total full-year sales of Sh264.03 billion.
Airtel Kenya’s mobile money platform recorded a profit of Sh79 million in the year ended December 2020, having reported revenue of Sh245 million in the period.